Battle Royale: Office Depot Vs. Office Max

Deutsche Bank research analyst Mike Baker put out two reports today for two very similar companies: Office Depot (ODP) and Office Max (OMX). The two competitors are recovering last year but in different ways. Both companies are now making more money with retail sales and office delivery numbers are down. Each company is also showing a strong balance sheet, with Office Depot holding $693m in cash and Office Max has a modest $214m.

However, Office Depot is clearly in the better position. With larger cash reserves and no pension shortfalls to deal with (Office Max is underfunded by $435m), the company is poised for stronger growth in future quarters compared with that of its rival. Here are a few key points from the reports:

Office Depot:

Overall sales trends improving in all sectors of business

Balance sheet healthy

Liquidity not an issue

Still not profitable, especially its retail business

Capital spending is up; a risk to cash flow, but a move that could pay off

Deutsche Bank Position: Hold; optimistic on retail outlook

Office Max:

Like Office Depot, sales trends improving

Gross margin down 1.4%, corporations ordering less

4Q09 should have higher sales but lower earnings per share

Strong balance sheet

Deutsche Bank Position: Hold

Below are side by side comparisons of each company:

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